Fall of ‘king of cryptocurrencies’ could reverberate for years: Morning Brief

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Wednesday 16 November 2022

Today’s newsletter is from Brian Sozzian editor-at-large e anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and go LinkedIn. Read this and other market news wherever you are Yahoo Finance application.

Trust is a vital element in investing – stocks, bonds, you name it. I trusted Walmart when it reported Tuesday that sales increased in the latest quarter. I trusted Walmart CFO John David Rainey when he spoke to me on Yahoo Finance Live about the retailer’s expectations for holiday sales. I trust that when I buy a bond, at some point in the future I will get the principal back with interest.

Unfortunately for cryptocurrencies, the space now faces a severe trust shortage in the wake of the FTX implosion. The cryptocurrency exchange filed for bankruptcy last week and its CEO, Sam Bankman-Fried, has stepped down. SBF, as he is known, became a crypto billionaire and industry star at the age of 29. Now in his 30s, SBF has lost his fortune and has admitted to lending FTX clients’ funds to Alameda Research, a trading firm he co-founded.

Sam Bankman-Fried, third from left, testifies during the House Agriculture Committee hearing on Changing Market Roles: The FTX Proposal and Trends in New Clearinghouse Models, in the Longworth Building on Thursday, May 12, 2022. (Tom Williams/CQ -Roll Call, Inc via Getty Images)

Cryptocurrency already had a reputation for carrying more risk than traditional investments. But the FTX drama has undoubtedly sown even more doubts about digital assets.

“I mean, actually, in a way, SBF is like the Jordan Belfort of the crypto era. Instead of ‘The Wolf of Wall Street,’ they’re going to make a movie called ‘The King of Crypto,’” the Microstrategy founder and Michael Saylor told me on Yahoo Finance Live this week.

Belfort pleaded guilty to fraud related to stock market manipulation in 1999 and spent 22 months in prison. He was later portrayed by Leonardo DiCaprio in the 2013 film ‘The Wolf of Wall Street’.

SBF has not been charged with a crime, but a criminal case against him is not ruled out. Federal prosecutors in Manhattan are investigating the FTX crash, the Wall Street Journal reported, citing unnamed sources with knowledge of the matter. However, US prosecutors may face difficulties because FTX is based in the Bahamas, where SBF lives in a house with a group of friends.

How on earth can you trust an industry where a key player sets up an offshore business and then potentially exposes themselves to criminal action anyway?

How can you put a cent of your hard-earned money into cryptocurrencies knowing it could vanish a minute later due to the absurd actions of a rich person living in the Bahamas?

SBF has he tweeted his apology, writing after the company filed for bankruptcy: “Hopefully things can find a way to bounce back. Hopefully this will bring them some transparency, trust and governance.”

Those words alone will not restore investor confidence in cryptocurrency, if any at all. But experts tell Yahoo Finance that there are ways cryptocurrencies can gain more legitimacy. The main elements needed to regain that trust include:

  • Strict regulations that treat cryptocurrencies like securities.

  • Repercussions for individuals and businesses that violate the new rules.

  • The elimination of suspicious cryptocurrencies.

Even with proper regulation and enforcement, the cryptocurrency industry will not recover overnight from the FTX fiasco. How long might it be before the trust returns?

“I think it will take years,” Liz Hoffman, business and finance editor at Semafor, told Yahoo Finance Live.

It seems right.

What to watch today

Economy

  • 8:30 am ET: Retail Sales, October (1.0% expected, 0.0% in September)

  • 8:30am ET: Import Price Index, Oct (-0.4% Exp., -1.2% in Sep)

  • 8:30am ET: Export Price Index, Oct (-0.3% Exp., -0.8% in Sep)

  • 9:15 a.m. ET: Industrial Production (0.1% expected, 0.4% in September)

  • 9:15 a.m. ET: Capacity utilization (80.4% expected, 80.3% in September)

  • 10am ET: Corporate Inventories, September (0.5% expected, 0.8% in September)

  • 10am ET: NAHB Housing Market Index, Nov (36 expected, 38 in Oct)

  • 4 p.m. ET: Long-term net ICT flows, September ($197.9 billion in August)

  • 4 p.m. ET: Total Net ICT Flows, September ($275.6 billion in August)

Earnings

  • 6 a.m. ET: Lowe’s company (LOW) Expected to Report Adjusted Earnings of $3.09 Per Share on Revenue of $23.14 Billion

  • 6:30 AM ET: Objective (TGT) expected to report adjusted earnings of $2.15 per share on revenue of $25.98 billion

  • 7:30 Italian time: TJX Company (TJX) Expected to Report Adjusted Earnings of $0.80 Per Share on Revenue of $12.30 Billion

  • 4:05 PM ET: Cisco (CSCO) expected to report adjusted earnings of $0.84 per share on revenue of $13.31 billion

  • 4:20 PM ET: Nvidia (NVDA) Expected to Report Adjusted Earnings of $0.70 Per Share on Revenue of $5.80 Billion

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